Overreach at the University of Miami?

UM had to restructure its huge investment in health care and life sciences but makes no apologies for its ambitions.

Goldschmidt and Shalala faced the faculty in January and promised change. Goldschmidt told faculty the enterprise was $8 million in the black and said 3% merit raises were coming. A special faculty committee on the med school reported that finances indeed had improved but that faculty feared the cuts would negatively affect the future.

Shalala, in an interview, says the cuts were necessary. “A rough patch,” she says of the time. “We didn’t touch anything on the clinical side or the faculty or student body. It was removing an administrative layer that frankly we couldn’t afford anymore if we were going to compete in the market. We went through a year in which we had to restructure, but so did every other health care company in the country.”

Nor does she regret UM’s ambitious buildup. Without it, she says, UM wouldn’t be tops in Florida in NIH funding and have a top 50 ranking for its med school and overall university. “We were ambitious, and we make no apologies for it. We have recovered smartly,” she says. “Financially, we’re in very good shape.”

All academic health centers face a difficult future, however. For decades, the model for such centers was to underwrite education and research with a web of cross-subsidies. Losses on Medicaid and Medicare patients were made up on profits from commercially insured patients. That overall profit from care by UM doctors and from UM hospital patients in turn underwrote teaching and research.

Now, all the payers — insurers and the government — are getting tighter with the dollars. Add in federal budget cuts in research, more changes in Medicare and issues with the Affordable Care Act. “We’re in an era of uncertainty,” says Steven Wartman, CEO and president of the Association of Academic Health Centers.

What’s more, the academic centers compete with doctors, practices and hospitals that don’t have research demands and can be more nimble. Academic centers have the challenge of getting academic-minded doctors to act as profit-motivated businesspeople. In short, the centers have to answer the question of how to deliver what they see as world-class health care at neighborhood clinic reimbursement levels.

Shalala, a former secretary of U.S. Department of Health and Human Services, knows this well. “I think in the long run everyone should be fine as long as they streamline. We can’t have more administration than we need. We can’t do things the old way. We have to organize ourselves in different ways. That’s not easy for people who have been here through generations. It’s painful but it has to be done. The competition is fierce out there. Cost containment is going to be the next great debate in health care.”

The university has fallen behind its promise on the state human genomics institute grant. The state so far has paid out $59 million of the $80 million it has committed, while the university has created 175 jobs out of the 194 it was to have created by now on the way to 296.

UM remains a school in demand. Tuition revenue was up 8% last year. Undergraduate applications were up 5% for the upcoming fall freshman class, to 28,800 for 2,000 seats. UM, like plenty of schools nationally, has seen surging interest from China with as many applicants from there as it has entire spots in its freshman class. Rising high school seniors likely will apply in droves this fall. “We’ve just been inundated” with visiting students during high school spring and Easter breaks, dean of enrollment management Edward Gillis said in April.

The average SAT for the incoming class for the most recent reported year was 1325, up from 1190 when Shalala came. Freshman retention is 91%, up from 80% some 15 years ago, and the graduation rate is 81%, up from 58%. “Almost everything we’re measuring is getting better,” says provost and Executive Vice President Thomas LeBlanc.

UM full, associate and assistant professors are the state’s best paid, with full professors — excluding medical faculty — making an average of $144,800, according to an American Association of University Professors survey. (UF is second at $122,500.)

UM in 2007 completed a $1.4-billion fundraising campaign, branded Momentum. It’s now $1.1 billion into the $1.6-billion Momentum2 goal. “That’s a sure sign people want to invest in the University of Miami,” Shalala says.

Shalala, who is 72, says she hasn’t decided when she will retire. But she is decisive on this question: “We’re the next great American research university.”